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Turbotax 2011 free 37. Turbotax 2011 free   Other Credits Table of Contents What's New Introduction Useful Items - You may want to see: Nonrefundable CreditsAdoption Credit Alternative Motor Vehicle Credit Alternative Fuel Vehicle Refueling Property Credit Credit to Holders of Tax Credit Bonds Foreign Tax Credit Mortgage Interest Credit Nonrefundable Credit for Prior Year Minimum Tax Plug-in Electric Drive Motor Vehicle Credit Residential Energy Credits Retirement Savings Contributions Credit (Saver's Credit) Refundable CreditsCredit for Tax on Undistributed Capital Gain Health Coverage Tax Credit Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld What's New Adoption credit. Turbotax 2011 free  The maximum adoption credit is $12,970 for 2013. Turbotax 2011 free See Adoption Credit . Turbotax 2011 free Plug-in electric vehicle credit. Turbotax 2011 free  This credit has expired. Turbotax 2011 free Credit for prior year minimum tax. Turbotax 2011 free  The refundable portion of the credit for prior year minimum tax has expired. Turbotax 2011 free Excess withholding of social security and railroad retirement tax. Turbotax 2011 free  Social security tax and tier 1 railroad retirement (RRTA) tax were both withheld during 2013 at a rate of 6. Turbotax 2011 free 2% of wages up to $113,700. Turbotax 2011 free If you worked for more than one employer and had too much social security or RRTA tax withheld during 2013, you may be entitled to a credit for the excess withholding. Turbotax 2011 free See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld . Turbotax 2011 free Introduction This chapter discusses the following nonrefundable credits. Turbotax 2011 free Adoption credit. Turbotax 2011 free Alternative motor vehicle credit. Turbotax 2011 free Alternative fuel vehicle refueling property credit. Turbotax 2011 free Credit to holders of tax credit bonds. Turbotax 2011 free Foreign tax credit. Turbotax 2011 free Mortgage interest credit. Turbotax 2011 free Nonrefundable credit for prior year minimum tax. Turbotax 2011 free Plug-in electric drive motor vehicle credit. Turbotax 2011 free Residential energy credits. Turbotax 2011 free Retirement savings contributions credit. Turbotax 2011 free This chapter also discusses the following refundable credits. Turbotax 2011 free Credit for tax on undistributed capital gain. Turbotax 2011 free Health coverage tax credit. Turbotax 2011 free Credit for excess social security tax or railroad retirement tax withheld. Turbotax 2011 free Several other credits are discussed in other chapters in this publication. Turbotax 2011 free Child and dependent care credit (chapter 32). Turbotax 2011 free Credit for the elderly or the disabled (chapter 33). Turbotax 2011 free Child tax credit (chapter 34). Turbotax 2011 free Education credits (chapter 35). Turbotax 2011 free Earned income credit (chapter 36). Turbotax 2011 free Nonrefundable credits. Turbotax 2011 free   The first part of this chapter, Nonrefundable Credits , covers ten credits that you subtract from your tax. Turbotax 2011 free These credits may reduce your tax to zero. Turbotax 2011 free If these credits are more than your tax, the excess is not refunded to you. Turbotax 2011 free Refundable credits. Turbotax 2011 free   The second part of this chapter, Refundable Credits , covers three credits that are treated as payments and are refundable to you. Turbotax 2011 free These credits are added to the federal income tax withheld and any estimated tax payments you made. Turbotax 2011 free If this total is more than your total tax, the excess will be refunded to you. Turbotax 2011 free Useful Items - You may want to see: Publication 502 Medical and Dental Expenses 514 Foreign Tax Credit for  Individuals 530 Tax Information for Homeowners 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 1116 Foreign Tax Credit 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 5695 Residential Energy Credits 8396 Mortgage Interest Credit 8801 Credit For Prior Year Minimum Tax — Individuals, Estates, and Trusts 8828 Recapture of Federal Mortgage Subsidy 8839 Qualified Adoption Expenses 8880 Credit for Qualified Retirement Savings Contributions 8885 Health Coverage Tax Credit 8910 Alternative Motor Vehicle Credit 8911 Alternative Fuel Vehicle Refueling Property Credit 8912 Credit to Holders of Tax Credit Bonds 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit Nonrefundable Credits The credits discussed in this part of the chapter can reduce your tax. Turbotax 2011 free However, if the total of these credits is more than your tax, the excess is not refunded to you. Turbotax 2011 free Adoption Credit You may be able to take a tax credit of up to $12,970 for qualified expenses paid to adopt an eligible child. Turbotax 2011 free The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified expenses. Turbotax 2011 free If your modified adjusted gross income (AGI) is more than $194,580, your credit is reduced. Turbotax 2011 free If your modified AGI is $234,580 or more, you cannot take the credit. Turbotax 2011 free Qualified adoption expenses. Turbotax 2011 free   Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. Turbotax 2011 free These expenses include: Adoption fees, Court costs, Attorney fees, Travel expenses (including amounts spent for meals and lodging) while away from home, and Re-adoption expenses to adopt a foreign child. Turbotax 2011 free Nonqualified expenses. Turbotax 2011 free   Qualified adoption expenses do not include expenses: That violate state or federal law, For carrying out any surrogate parenting arrangement, For the adoption of your spouse's child, For which you received funds under any federal, state, or local program, Allowed as a credit or deduction under any other federal income tax rule, or Paid or reimbursed by your employer or any other person or organization. Turbotax 2011 free Eligible child. Turbotax 2011 free   The term “eligible child” means any individual: Under 18 years old, or Physically or mentally incapable of caring for himself or herself. Turbotax 2011 free Child with special needs. Turbotax 2011 free   An eligible child is a child with special needs if all three of the following apply. Turbotax 2011 free The child was a citizen or resident of the United States (including U. Turbotax 2011 free S. Turbotax 2011 free possessions) at the time the adoption process began. Turbotax 2011 free A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home. Turbotax 2011 free The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Turbotax 2011 free Factors used by states to make this determination include: The child's ethnic background, The child's age, Whether the child is a member of a minority or sibling group, and Whether the child has a medical condition or a physical, mental, or emotional handicap. Turbotax 2011 free When to take the credit. Turbotax 2011 free   Generally, until the adoption becomes final, you take the credit in the year after your qualified expenses were paid or incurred. Turbotax 2011 free If the adoption becomes final, you take the credit in the year your expenses were paid or incurred. Turbotax 2011 free See the Instructions for Form 8839 for more specific information on when to take the credit. Turbotax 2011 free Foreign child. Turbotax 2011 free   If the child is not a U. Turbotax 2011 free S. Turbotax 2011 free citizen or resident at the time the adoption process began, you cannot take the credit unless the adoption becomes final. Turbotax 2011 free You treat all adoption expenses paid or incurred in years before the adoption becomes final as paid or incurred in the year it becomes final. Turbotax 2011 free How to take the credit. Turbotax 2011 free   Figure your 2013 nonrefundable credit and any carryforward to 2014 on Form 8839 and attach it to your Form 1040. Turbotax 2011 free Include the credit in your total for Form 1040, line 53. Turbotax 2011 free Check box c and enter “8839” on the line next to that box. Turbotax 2011 free More information. Turbotax 2011 free   For more information, see the Instructions for Form 8839. Turbotax 2011 free Alternative Motor Vehicle Credit You may be able to take this credit if you place a qualified fuel cell vehicle in service in 2013. Turbotax 2011 free Amount of credit. Turbotax 2011 free   Generally, you can rely on the manufacturer's certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies. Turbotax 2011 free In the case of a foreign manufacturer, you generally can rely on its domestic distributor's certification to the IRS. Turbotax 2011 free   Ordinarily the amount of the credit is 100% of the manufacturer's (or domestic distributor's) certification to the IRS of the maximum credit allowable. Turbotax 2011 free How to take the credit. Turbotax 2011 free   To take the credit, you must complete Form 8910 and attach it to your Form 1040. Turbotax 2011 free Include the credit in your total for Form 1040, line 53. Turbotax 2011 free Check box c and enter “8910” on the line next to that box. Turbotax 2011 free More information. Turbotax 2011 free   For more information on the credit, see the Instructions for Form 8910. Turbotax 2011 free Alternative Fuel Vehicle Refueling Property Credit You may be able to take a credit if you place qualified alternative fuel vehicle refueling property in service in 2013. Turbotax 2011 free Qualified alternative fuel vehicle refueling property. Turbotax 2011 free   Qualified alternative fuel vehicle refueling property is any property (other than a building or its structural components) used for either of the following. Turbotax 2011 free To store or dispense alternative fuel into the fuel tank of a motor vehicle propelled by the fuel, but only if the storage or dispensing is at the point where the fuel is delivered into that tank. Turbotax 2011 free To recharge an electric vehicle, but only if the recharging property is located at the point where the vehicle is recharged. Turbotax 2011 free   The following are alternative fuels. Turbotax 2011 free Any fuel at least 85% of the volume of which consists of one or more of the following: ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen. Turbotax 2011 free Any mixture which consists of two or more of the following: biodiesel, diesel fuel, or kerosene, and at least 20% of the volume of which consists of biodiesel determined without regard to any kerosene. Turbotax 2011 free Electricity. Turbotax 2011 free Amount of the credit. Turbotax 2011 free   For personal use property, the credit is generally the smaller of 30% of the property's cost or $1,000. Turbotax 2011 free For business use property, the credit is generally the smaller of 30% of the property's cost or $30,000. Turbotax 2011 free How to take the credit. Turbotax 2011 free   To take the credit, you must complete Form 8911 and attach it to your Form 1040. Turbotax 2011 free Include the credit in your total for Form 1040, line 53. Turbotax 2011 free Check box c and enter “8911” on the line next to that box. Turbotax 2011 free More information. Turbotax 2011 free   For more information on the credit, see the Form 8911 instructions. Turbotax 2011 free Credit to Holders of Tax Credit Bonds Tax credit bonds are bonds in which the holder receives a tax credit in lieu of some or all of the interest on the bond. Turbotax 2011 free You may be able to take a credit if you are a holder of one of the following bonds. Turbotax 2011 free Clean renewable energy bonds (issued before 2010). Turbotax 2011 free New clean renewable energy bonds. Turbotax 2011 free Qualified energy conservation bonds. Turbotax 2011 free Qualified school construction bonds. Turbotax 2011 free Qualified zone academy bonds. Turbotax 2011 free Build America bonds. Turbotax 2011 free In some instances, an issuer may elect to receive a credit for interest paid on the bond. Turbotax 2011 free If the issuer makes this election, you cannot also claim a credit. Turbotax 2011 free Interest income. Turbotax 2011 free   The amount of any tax credit allowed (figured before applying tax liability limits) must be included as interest income on your tax return. Turbotax 2011 free How to take the credit. Turbotax 2011 free   Complete Form 8912 and attach it to your Form 1040. Turbotax 2011 free Include the credit in your total for Form 1040, line 53. Turbotax 2011 free Check box c and enter “8912” on the line next to that box. Turbotax 2011 free More information. Turbotax 2011 free   For more information, see the Instructions for Form 8912. Turbotax 2011 free Foreign Tax Credit You generally can choose to take income taxes you paid or accrued during the year to a foreign country or U. Turbotax 2011 free S. Turbotax 2011 free possession as a credit against your U. Turbotax 2011 free S. Turbotax 2011 free income tax. Turbotax 2011 free Or, you can deduct them as an itemized deduction (see chapter 22). Turbotax 2011 free You cannot take a credit (or deduction) for foreign income taxes paid on income that you exclude from U. Turbotax 2011 free S. Turbotax 2011 free tax under any of the following. Turbotax 2011 free Foreign earned income exclusion. Turbotax 2011 free Foreign housing exclusion. Turbotax 2011 free Income from Puerto Rico exempt from U. Turbotax 2011 free S. Turbotax 2011 free tax. Turbotax 2011 free Possession exclusion. Turbotax 2011 free Limit on the credit. Turbotax 2011 free   Unless you can elect not to file Form 1116 (see Exception , later), your foreign tax credit cannot be more than your U. Turbotax 2011 free S. Turbotax 2011 free tax liability (Form 1040, line 44), multiplied by a fraction. Turbotax 2011 free The numerator of the fraction is your taxable income from sources outside the United States. Turbotax 2011 free The denominator is your total taxable income from U. Turbotax 2011 free S. Turbotax 2011 free and foreign sources. Turbotax 2011 free See Publication 514 for more information. Turbotax 2011 free How to take the credit. Turbotax 2011 free   Complete Form 1116 and attach it to your Form 1040. Turbotax 2011 free Enter the credit on Form 1040, line 47. Turbotax 2011 free Exception. Turbotax 2011 free   You do not have to complete Form 1116 to take the credit if all of the following apply. Turbotax 2011 free All of your gross foreign source income was from interest and dividends and all of that income and the foreign tax paid on it were reported to you on Form 1099-INT, Form 1099-DIV, or Schedule K-1 (or substitute statement). Turbotax 2011 free If you had dividend income from shares of stock, you held those shares for at least 16 days. Turbotax 2011 free You are not filing Form 4563 or excluding income from sources within Puerto Rico. Turbotax 2011 free The total of your foreign taxes was not more than $300 (not more than $600 if married filing jointly). Turbotax 2011 free All of your foreign taxes were: Legally owed and not eligible for a refund, and Paid to countries that are recognized by the United States and do not support terrorism. Turbotax 2011 free More information. Turbotax 2011 free   For more information on the credit and these requirements, see the Instructions for Form 1116. Turbotax 2011 free Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals own a home. Turbotax 2011 free If you qualify, you can take the credit each year for part of the home mortgage interest you pay. Turbotax 2011 free Who qualifies. Turbotax 2011 free   You may be eligible for the credit if you were issued a qualified mortgage credit certificate (MCC) from your state or local government. Turbotax 2011 free Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Turbotax 2011 free Amount of credit. Turbotax 2011 free   Figure your credit on Form 8396. Turbotax 2011 free If your mortgage loan amount is equal to (or smaller than) the certified indebtedness (loan) amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. Turbotax 2011 free   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. Turbotax 2011 free To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. Turbotax 2011 free      Certified indebtedness amount on your MCC     Original amount of your mortgage   Limit based on credit rate. Turbotax 2011 free   If the certificate credit rate is more than 20%, the credit you are allowed cannot be more than $2,000. Turbotax 2011 free If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, this $2,000 limit must be divided based on the interest held by each person. Turbotax 2011 free See Publication 530 for more information. Turbotax 2011 free Carryforward. Turbotax 2011 free   Your credit (after applying the limit based on the credit rate) is also subject to a limit based on your tax that is figured using Form 8396. Turbotax 2011 free If your allowable credit is reduced because of this tax liability limit, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. Turbotax 2011 free   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). Turbotax 2011 free How to take the credit. Turbotax 2011 free    Figure your 2013 credit and any carryforward to 2014 on Form 8396, and attach it to your Form 1040. Turbotax 2011 free Be sure to include any credit carryforward from 2010, 2011, and 2012. Turbotax 2011 free   Include the credit in your total for Form 1040, line 53. Turbotax 2011 free Check box c and enter “8396” on the line next to that box. Turbotax 2011 free Reduced home mortgage interest deduction. Turbotax 2011 free   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. Turbotax 2011 free You must do this even if part of that amount is to be carried forward to 2014. Turbotax 2011 free For more information about the home mortgage interest deduction, see chapter 23. Turbotax 2011 free Recapture of federal mortgage subsidy. Turbotax 2011 free   If you received an MCC with your mortgage loan, you may have to recapture (pay back) all or part of the benefit you received from that program. Turbotax 2011 free The recapture may be required if you sell or dispose of your home at a gain during the first 9 years after the date you closed your mortgage loan. Turbotax 2011 free See the Instructions for Form 8828 and chapter 15 for more information. Turbotax 2011 free More information. Turbotax 2011 free   For more information on the credit, see the Form 8396 instructions. Turbotax 2011 free Nonrefundable Credit for Prior Year Minimum Tax The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. Turbotax 2011 free If you benefit from these laws, you may have to pay at least a minimum amount of tax in addition to any other tax on these items. Turbotax 2011 free This is called the alternative minimum tax. Turbotax 2011 free The special treatment of some items of income and expenses only allows you to postpone paying tax until a later year. Turbotax 2011 free If in prior years you paid alternative minimum tax because of these tax postponement items, you may be able to take a credit for prior year minimum tax against your current year's regular tax. Turbotax 2011 free You may be able to take a credit against your regular tax if for 2012 you had: An alternative minimum tax liability and adjustments or preferences other than exclusion items, A minimum tax credit that you are carrying forward to 2013, or An unallowed qualified electric vehicle credit. Turbotax 2011 free How to take the credit. Turbotax 2011 free    Figure your 2013 nonrefundable credit (if any), and any carryforward to 2014 on Form 8801, and attach it to your Form 1040. Turbotax 2011 free Include the credit in your total for Form 1040, line 53, and check box b. Turbotax 2011 free You can carry forward any unused credit for prior year minimum tax to later years until it is completely used. Turbotax 2011 free More information. Turbotax 2011 free   For more information on the credit, see the Instructions for Form 8801. Turbotax 2011 free Plug-in Electric Drive Motor Vehicle Credit You may be able to take this credit if you placed in service for business or personal use a qualified plug-in electric drive motor vehicle or a qualified two- or three-wheeled plug-in electric vehicle in 2013 and you meet some other requirements. Turbotax 2011 free Qualified plug-in electric drive motor vehicle. Turbotax 2011 free   This is a new vehicle with at least four wheels that: Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. Turbotax 2011 free Qualified two- or three-wheeled plug-in electric vehicle. Turbotax 2011 free   This is a new vehicle with two or three wheels that: Is capable of achieving a speed of 45 miles per hour or greater, Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 2. Turbotax 2011 free 5 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. Turbotax 2011 free Certification and other requirements. Turbotax 2011 free   Generally, you can rely on the manufacturer's (or, in the case of a foreign manufacturer, its domestic distributor's) certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and, if applicable, the amount of the credit for which it qualifies. Turbotax 2011 free However, if the IRS publishes an announcement that the certification for any specific make, model, and model year vehicle has been withdrawn, you cannot rely on the certification for such a vehicle purchased after the date of publication of the withdrawal announcement. Turbotax 2011 free   The following requirements must also be met to qualify for the credit. Turbotax 2011 free You are the owner of the vehicle. Turbotax 2011 free If the vehicle is leased, only the lessor, and not the lessee, is entitled to the credit. Turbotax 2011 free You placed the vehicle in service during 2013. Turbotax 2011 free The vehicle is manufactured primarily for use on public streets, roads, and highways. Turbotax 2011 free The original use of the vehicle began with you. Turbotax 2011 free You acquired the vehicle for your use or to lease to others, and not for resale. Turbotax 2011 free In the case of the qualified two- or three-wheeled plug-in electric vehicle, the vehicle is acquired after 2011 and before 2014. Turbotax 2011 free You use the vehicle primarily in the United States. Turbotax 2011 free How to take the credit. Turbotax 2011 free   To take the credit, you must complete Form 8936 and attach it to your Form 1040. Turbotax 2011 free Include the credit in your total for Form 1040, line 53. Turbotax 2011 free Check box c and enter “8936” on the line next to that box. Turbotax 2011 free More information. Turbotax 2011 free   For more information on the credit, see the Form 8936 instructions. Turbotax 2011 free Residential Energy Credits You may be able to take one or both of the following credits if you made energy saving improvements to your home located in the United States in 2013. Turbotax 2011 free Nonbusiness energy property credit. Turbotax 2011 free Residential energy efficient property credit. Turbotax 2011 free If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of the association or corporation for purposes of these credits. Turbotax 2011 free Nonbusiness energy property credit. Turbotax 2011 free   You may be able to take a credit equal to the sum of: 10% of the amount paid or incurred for qualified energy efficiency improvements installed during 2013, and Any residential energy property costs paid or incurred in 2013. Turbotax 2011 free   There is a lifetime limit of $500 for all years after 2005, of which only $200 can be for windows; $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property. Turbotax 2011 free    If the total of nonbusiness energy property credits you have taken in previous years (after 2005) is more than $500, you cannot take this credit in 2013. Turbotax 2011 free   Qualified energy efficiency improvements are the following improvements that are new, can be expected to remain in use at least 5 years, and meet certain requirements for energy efficiency. Turbotax 2011 free Any insulation material or system that is specifically and primarily designed to reduce heat loss or gain of a home. Turbotax 2011 free Exterior window (including skylights). Turbotax 2011 free Exterior doors. Turbotax 2011 free Any metal or asphalt roof that has appropriate pigmented coatings or cooling granules specifically and primarily designed to reduce heat gain of the home. Turbotax 2011 free   Residential energy property is any of the following. Turbotax 2011 free Certain electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane, or oil water heater; and stoves that use biomass fuel. Turbotax 2011 free Qualified natural gas, propane, or oil furnaces; and qualified natural gas, propane, or oil hot water boilers. Turbotax 2011 free Certain advanced main air circulating fans used in natural gas, propane, or oil furnaces. Turbotax 2011 free Residential energy efficient property credit. Turbotax 2011 free   You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, fuel cell property, small wind energy property, and geothermal heat pump property. Turbotax 2011 free The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property. Turbotax 2011 free Basis reduction. Turbotax 2011 free   You must reduce the basis of your home by the amount of any credit allowed. Turbotax 2011 free How to take the credit. Turbotax 2011 free   Complete Form 5695 and attach it to your Form 1040. Turbotax 2011 free Enter the credit on Form 1040, line 52. Turbotax 2011 free More information. Turbotax 2011 free   For more information on these credits, see the Form 5695 instructions. Turbotax 2011 free Retirement Savings Contributions Credit (Saver's Credit) You may be able to take this credit if you, or your spouse if filing jointly, made: Contributions (other than rollover contributions) to a traditional or Roth IRA, Elective deferrals to a 401(k) or 403(b) plan (including designated Roth contributions) or to a governmental 457, SEP, or SIMPLE plan, Voluntary employee contributions to a qualified retirement plan (including the federal Thrift Savings Plan), or Contributions to a 501(c)(18)(D) plan. Turbotax 2011 free However, you cannot take the credit if either of the following applies. Turbotax 2011 free The amount on Form 1040, line 38, or Form 1040A, line 22, is more than $29,500 ($44,250 if head of household; $59,000 if married filing jointly). Turbotax 2011 free The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1996, (b) is claimed as a dependent on someone else's 2013 tax return, or (c) was a student (defined next). Turbotax 2011 free Student. Turbotax 2011 free   You were a student if during any part of 5 calendar months of 2013 you: Were enrolled as a full-time student at a school, or Took a full-time, on-farm training course given by a school or a state, county, or local government agency. Turbotax 2011 free School. Turbotax 2011 free   A school includes a technical, trade, or mechanical school. Turbotax 2011 free It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Turbotax 2011 free How to take the credit. Turbotax 2011 free   Figure the credit on Form 8880. Turbotax 2011 free Enter the credit on your Form 1040, line 50, or your Form 1040A, line 32, and attach Form 8880 to your return. Turbotax 2011 free More information. Turbotax 2011 free   For more information on the credit, see the Form 8880 instructions. Turbotax 2011 free Refundable Credits The credits discussed in this part of the chapter are treated as payments of tax. Turbotax 2011 free If the total of these credits, withheld federal income tax, and estimated tax payments is more than your total tax, the excess can be refunded to you. Turbotax 2011 free Credit for Tax on Undistributed Capital Gain You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. Turbotax 2011 free If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. Turbotax 2011 free The mutual fund or REIT will send you Form 2439 showing your share of the undistributed capital gains and the tax paid, if any. Turbotax 2011 free How to take the credit. Turbotax 2011 free   To take the credit, attach Copy B of Form 2439 to your Form 1040. Turbotax 2011 free Include the amount from box 2 of your Form 2439 in the total for Form 1040, line 71, and check box a. Turbotax 2011 free More information. Turbotax 2011 free   See Capital Gain Distributions in chapter 8 for more information on undistributed capital gains. Turbotax 2011 free Health Coverage Tax Credit You may be able to take this credit for any month in which all the following statements were true on the first day of the month. Turbotax 2011 free You were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient (defined later); or you were a qualified family member of one of these individuals when the individual died or you finalized a divorce with one of these individuals. Turbotax 2011 free You and/or your family members were covered by a qualified health insurance plan for which you paid the entire premiums, or your portion of the premiums, directly to your health plan or to “U. Turbotax 2011 free S. Turbotax 2011 free Treasury–HCTC. Turbotax 2011 free ” You were not enrolled in Medicare Part A, B, or C, or you were enrolled in Medicare but your family member(s) qualified for the HCTC. Turbotax 2011 free You were not enrolled in Medicaid or the Children's Health Insurance Program (CHIP). Turbotax 2011 free You were not enrolled in the Federal Employees Health Benefits program (FEHBP) or eligible to receive benefits under the U. Turbotax 2011 free S. Turbotax 2011 free military health system (TRICARE). Turbotax 2011 free You were not imprisoned under federal, state, or local authority. Turbotax 2011 free Your employer did not pay 50% or more of the cost of coverage. Turbotax 2011 free You did not receive a 65% COBRA premium reduction from your former employer or COBRA administrator. Turbotax 2011 free But, you cannot take the credit if you can be claimed as a dependent on someone else's 2013 tax return. Turbotax 2011 free If you meet all of these conditions, you may be able to take a credit of up to 72. Turbotax 2011 free 5% of the amount you paid directly to a qualified health plan for you and any qualifying family members. Turbotax 2011 free You cannot take the credit for insurance premiums on coverage that was actually paid for with a National Emergency Grant. Turbotax 2011 free The amount you paid for qualified health insurance coverage must be reduced by any Archer MSA and health savings account distributions used to pay for the coverage. Turbotax 2011 free You can take this credit on your tax return or have it paid on your behalf in advance to your insurance company. Turbotax 2011 free If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can take on your tax return. Turbotax 2011 free TAA recipient. Turbotax 2011 free   You were an eligible TAA recipient on the first day of the month if, for any day in that month or the prior month, you: Received a trade readjustment allowance, or Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and is not reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied). Turbotax 2011 free Example. Turbotax 2011 free You received a trade adjustment allowance for January 2013. Turbotax 2011 free You were an eligible TAA recipient on the first day of January and February. Turbotax 2011 free Alternative TAA recipient. Turbotax 2011 free   You were an eligible alternative TAA recipient on the first day of the month if, for that month or the prior month, you received benefits under an alternative trade adjustment assistance program for older workers established by the Department of Labor. Turbotax 2011 free Example. Turbotax 2011 free You received benefits under an alternative trade adjustment assistance program for older workers for October 2013. Turbotax 2011 free The program was established by the Department of Labor. Turbotax 2011 free You were an eligible alternative TAA recipient on the first day of October and November. Turbotax 2011 free RTAA recipient. Turbotax 2011 free   You were an eligible RTAA recipient on the first day of the month if, for that month or the prior month, you received benefits under a reemployment trade adjustment assistance program for older workers established by the Department of Labor. Turbotax 2011 free PBGC pension recipient. Turbotax 2011 free   You were an eligible PBGC pension recipient on the first day of the month, if both of the following apply. Turbotax 2011 free You were age 55 or older on the first day of the month. Turbotax 2011 free You received a benefit for that month paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA). Turbotax 2011 free If you received a lump-sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump-sum payment. Turbotax 2011 free How to take the credit. Turbotax 2011 free   To take the credit, complete Form 8885 and attach it to your Form 1040. Turbotax 2011 free Include your credit in the total for Form 1040, line 71, and check box c. Turbotax 2011 free   You must attach health insurance bills (or COBRA payment coupons) and proof of payment for any amounts you include on Form 8885, line 2. Turbotax 2011 free For details, see Publication 502 or Form 8885. Turbotax 2011 free More information. Turbotax 2011 free   For definitions and special rules, including those relating to qualified health insurance plans, qualifying family members, the effect of certain life events, and employer-sponsored health insurance plans, see Publication 502 and the Form 8885 instructions. Turbotax 2011 free Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld Most employers must withhold social security tax from your wages. Turbotax 2011 free If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax. Turbotax 2011 free If you worked for two or more employers in 2013, you may have had too much social security tax withheld from your pay. Turbotax 2011 free If one or more of those employers was a railroad employer, too much tier 1 RRTA tax may also have been withheld at the 6. Turbotax 2011 free 2% rate. Turbotax 2011 free You can claim the excess social security or tier 1 RRTA tax as a credit against your income tax when you file your return. Turbotax 2011 free For the tier 1 RRTA tax, only use the portion of the tier 1 RRTA tax that was taxed at the 6. Turbotax 2011 free 2% rate when figuring if excess tier 1 RRTA tax was withheld; do not include any portion of the tier 1 RRTA tax that was withheld at the Medicare tax rate (1. Turbotax 2011 free 45%) or the Additional Medicare Tax rate (. Turbotax 2011 free 9%). Turbotax 2011 free The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld for 2013. Turbotax 2011 free Type of tax Maximum  wages subject to tax Maximum tax that should have been withheld Social security or RRTA tier 1 $113,700 $7,049. Turbotax 2011 free 40 RRTA tier 2 $84,300 $3,709. Turbotax 2011 free 20 All wages are subject to Medicare tax withholding. Turbotax 2011 free   Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess tier 2 RRTA tax. Turbotax 2011 free Be sure to attach a copy of all of your W-2 forms. Turbotax 2011 free Use Worksheet 3-3 in Publication 505, Tax Withholding and Estimated Tax, to help you figure the excess amount. Turbotax 2011 free Employer's error. Turbotax 2011 free   If any one employer withheld too much social security or tier 1 RRTA tax, you cannot take the excess as a credit against your income tax. Turbotax 2011 free The employer should adjust the tax for you. Turbotax 2011 free If the employer does not adjust the overcollection, you can file a claim for refund using Form 843. Turbotax 2011 free Joint return. Turbotax 2011 free   If you are filing a joint return, you cannot add the social security or tier 1 RRTA tax withheld from your spouse's wages to the amount withheld from your wages. Turbotax 2011 free Figure the withholding separately for you and your spouse to determine if either of you has excess withholding. Turbotax 2011 free How to figure the credit if you did not work for a railroad. Turbotax 2011 free   If you did not work for a railroad during 2013, figure the credit as follows: 1. Turbotax 2011 free Add all social security tax withheld (but not more than $7,049. Turbotax 2011 free 40 for each employer). Turbotax 2011 free Enter the total here   2. Turbotax 2011 free Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. Turbotax 2011 free Add lines 1 and 2. Turbotax 2011 free If $7,049. Turbotax 2011 free 40 or less, stop here. Turbotax 2011 free You cannot take  the credit   4. Turbotax 2011 free Social security tax limit 7,049. Turbotax 2011 free 40 5. Turbotax 2011 free Credit. Turbotax 2011 free Subtract line 4 from line 3. Turbotax 2011 free Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ Example. Turbotax 2011 free You are married and file a joint return with your spouse who had no gross income in 2013. Turbotax 2011 free During 2013, you worked for the Brown Technology Company and earned $60,000 in wages. Turbotax 2011 free Social security tax of $3,720 was withheld. Turbotax 2011 free You also worked for another employer in 2013 and earned $55,000 in wages. Turbotax 2011 free $3,410 of social security tax was withheld from these wages. Turbotax 2011 free Because you worked for more than one employer and your total wages were more than $113,700, you can take a credit of $80. Turbotax 2011 free 60 for the excess social security tax withheld. Turbotax 2011 free 1. Turbotax 2011 free Add all social security tax withheld (but not more than $7,049. Turbotax 2011 free 40 for each employer). Turbotax 2011 free Enter the total here $7,130. Turbotax 2011 free 00 2. Turbotax 2011 free Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT” -0- 3. Turbotax 2011 free Add lines 1 and 2. Turbotax 2011 free If $7,049. Turbotax 2011 free 40 or less, stop here. Turbotax 2011 free You cannot take the credit 7,130. Turbotax 2011 free 00 4. Turbotax 2011 free Social security tax limit 7,049. Turbotax 2011 free 40 5. Turbotax 2011 free Credit. Turbotax 2011 free Subtract line 4 from line 3. Turbotax 2011 free Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $80. Turbotax 2011 free 60 How to figure the credit if you worked for a railroad. Turbotax 2011 free   If you were a railroad employee at any time during 2013, figure the credit as follows: 1. Turbotax 2011 free Add all social security and tier 1 RRTA tax withheld at the 6. Turbotax 2011 free 2% rate (but not more than $7,049. Turbotax 2011 free 40 for each employer). Turbotax 2011 free Enter the total here   2. Turbotax 2011 free Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. Turbotax 2011 free Add lines 1 and 2. Turbotax 2011 free If $7,049. Turbotax 2011 free 40 or less, stop here. Turbotax 2011 free You cannot take  the credit   4. Turbotax 2011 free Social security and tier 1 RRTA  tax limit 7,049. Turbotax 2011 free 40 5. Turbotax 2011 free Credit. Turbotax 2011 free Subtract line 4 from line 3. Turbotax 2011 free Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ How to take the credit. Turbotax 2011 free   Enter the credit on Form 1040, line 69, or include it in the total for Form 1040A, line 41. Turbotax 2011 free More information. Turbotax 2011 free   For more information on the credit, see Publication 505. Turbotax 2011 free Prev  Up  Next   Home   More Online Publications

Tax Topic Index

Topic 123

These Tax Topics contain general individual and business tax information. If you don't find the answer to your question below, also check Frequently Asked Questions, Interactive Tax Assistant (ITA) and Tax Trails.

IRS Help Available Topic 100
IRS Services – Volunteer Tax Assistance, Outreach Programs and Identity Theft Topic 101
Tax Assistance for Individuals with Disabilities and the Deaf and Hard of Hearing Topic 102
Tax Help for Small Businesses and the Self-Employed Topic 103
Taxpayer Advocate Service – Your Voice at the IRS Topic 104
Armed Forces Tax Information Topic 105
Tax Relief in Disaster Situations Topic 107
IRS Procedures Topic 150
Your Appeal Rights Topic 151
Refund Information Topic 152
What To Do if You Haven't Filed Your Tax Return Topic 153
Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received) Topic 154
Forms and Publications – How to Order Topic 155
Copy of Your Tax Return – How to Get One Topic 156
Change of Address – How to Notify the IRS Topic 157
Ensuring Proper Credit of Payments Topic 158
Prior Year(s) Form W-2 (How to Get a Copy) Topic 159
Form 1099-A (Acquisition or Abandonment of Secured Property) and Form 1099-C (Cancellation of Debt) Topic 160
Collection Topic 200
The Collection Process Topic 201
Tax Payment Options Topic 202
Refund Offsets for Unpaid Child Support, Certain Federal and State Debts, and Unemployment Compensation Debts Topic 203
Offers In Compromise Topic 204
Innocent Spouse Relief (Including Separation of Liability and Equitable Relief) Topic 205
Dishonored Payments Topic 206
Alternative Filing Methods Topic 250
Substitute Tax Forms Topic 253
How to Choose a Tax Return Preparer Topic 254
Self-Select PIN Signature Method for Online Registration Topic 255
General Information Topic 300
When, Where, and How to File Topic 301
Checklist of Common Errors When Preparing Your Tax Return Topic 303
Extensions of Time to File Your Tax Return Topic 304
Recordkeeping Topic 305
Penalty for Underpayment of Estimated Tax Topic 306
Backup Withholding Topic 307
Amended Returns Topic 308
Roth IRA Contributions Topic 309
Coverdell Education Savings Accounts Topic 310
Power of Attorney Information Topic 311
Disclosure Authorizations Topic 312
Qualified Tuition Programs (QTPs) Topic 313
Which Forms to File Topic 350
Which Form – 1040, 1040A, or 1040EZ? Topic 352
Decedents Topic 356
Types of Income Topic 400
Wages and Salaries Topic 401
Interest Received Topic 403
Dividends Topic 404
Business Income Topic 407
Capital Gains and Losses Topic 409
Pensions and Annuities Topic 410
Pensions – The General Rule and the Simplified Method Topic 411
Lump-Sum Distributions Topic 412
Rollovers from Retirement Plans Topic 413
Rental Income and Expenses Topic 414
Renting Residential and Vacation Property Topic 415
Farming and Fishing Income Topic 416
Earnings for Clergy Topic 417
Unemployment Compensation Topic 418
Gambling Income and Losses Topic 419
Bartering Income Topic 420
Scholarship and Fellowship Grants Topic 421
Social Security and Equivalent Railroad Retirement Benefits Topic 423
401(k) Plans Topic 424
Passive Activities – Losses and Credits Topic 425
Stock Options Topic 427
Traders in Securities (Information for Form 1040 Filers) Topic 429
Receipt of Stock in a Demutualization Topic 430
Canceled Debt – Is It Taxable or Not? Topic 431
Adjustments to Income Topic 450
Individual Retirement Arrangements (IRAs) Topic 451
Alimony Paid Topic 452
Bad Debt Deduction Topic 453
Moving Expenses Topic 455
Student Loan Interest Deduction Topic 456
Tuition and Fees Deduction Topic 457
Educator Expense Deduction Topic 458
Itemized Deductions Topic 500
Should I Itemize? Topic 501
Medical and Dental Expenses Topic 502
Deductible Taxes Topic 503
Home Mortgage Points Topic 504
Interest Expense Topic 505
Charitable Contributions Topic 506
Miscellaneous Expenses Topic 508
Business Use of Home Topic 509
Business Use of Car Topic 510
Business Travel Expenses Topic 511
Business Entertainment Expenses Topic 512
Educational Expenses Topic 513
Employee Business Expenses Topic 514
Casualty, Disaster, and Theft Losses (Including Federally Declared Disaster Areas) Topic 515
Tax Computation Topic 550
Standard Deduction Topic 551
Tax and Credits Figured by the IRS Topic 552
Tax on a Child's Investment Income Topic 553
Self-Employment Tax Topic 554
Alternative Minimum Tax Topic 556
Additional Tax on Early Distributions from Traditional and ROTH IRAs Topic 557
Additional Tax on Early Distributions from Retirement Plans, Other Than IRAs Topic 558
Net Investment Income Tax Topic 559
Additional Medicare Tax Topic 560
Tax Credits Topic 600
Earned Income Credit Topic 601
Child and Dependent Care Credit Topic 602
Adoption Credit and Adoption Assistance Programs Topic 607
Excess Social Security and RRTA Tax Withheld Topic 608
Retirement Savings Contributions Credit Topic 610
Repayment of the First-time Homebuyer Credit Topic 611
IRS Notices Topic 650
Notices – What to Do Topic 651
Notice of Underreported Income – CP-2000 Topic 652
IRS Notices and Bills, Penalties and Interest Charges Topic 653
Basis of Assets, Depreciation, and Sale of Assets Topic 700
Sale of Your Home Topic 701
Basis of Assets Topic 703
Depreciation Topic 704
Installment Sales Topic 705
Employer Tax Information Topic 750
Social Security and Medicare Withholding Rates Topic 751
Form W-2 – Where, When, and How to File Topic 752
Form W-4 – Employee's Withholding Allowance Certificate Topic 753
Employer Identification Number (EIN) – How to Apply Topic 755
Employment Taxes for Household Employees Topic 756
Forms 941 and 944 – Deposit Requirements Topic 757
Form 941 – Employer's Quarterly Federal Tax Return and Form 944 – Employer's Annual Federal Tax Return Topic 758
Form 940 – Employer's Annual Federal Unemployment (FUTA) Tax Return – Filing and Deposit Requirements Topic 759
Reporting and Deposit Requirements for Agricultural Employers Topic 760
Tips – Withholding and Reporting Topic 761
Independent Contractor vs. Employee Topic 762
The Affordable Care Act Topic 763
Electronic Media Filers – 1099 Series and Related Information Returns Topic 800
Who Must File Information Returns Electronically Topic 801
Applications, Forms, and Information Topic 802
Waivers and Extensions Topic 803
Test Files and Combined Federal and State Filing Topic 804
Electronic Filing of Information Returns Topic 805
Tax Information for Aliens and U.S. Citizens Living Abroad Topic 850
Resident and Nonresident Aliens Topic 851
Foreign Tax Credit Topic 856
Individual Taxpayer Identification Number (ITIN) – Form W-7 Topic 857
Alien Tax Clearance Topic 858
Tax Information for Residents of Puerto Rico Topic 900
Is a Person With Income from Puerto Rican Sources Required to File a U.S. Federal Income Tax Return? Topic 901
Credits and Deductions for Taxpayers With Puerto Rican Source Income That is Exempt From U.S. Tax Topic 902
Federal Employment Tax in Puerto Rico Topic 903
Tax Assistance for Residents of Puerto Rico Topic 904

Page Last Reviewed or Updated: March 20, 2014

The Turbotax 2011 Free

Turbotax 2011 free 4. Turbotax 2011 free   Figuring Depreciation Under MACRS Table of Contents Introduction Useful Items - You may want to see: Which Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS?Rent-to-own dealer. Turbotax 2011 free Rent-to-own contract. Turbotax 2011 free What Is the Placed in Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies?Recovery Periods Under GDS Recovery Periods Under ADS Additions and Improvements Which Convention Applies? Which Depreciation Method Applies?Depreciation Methods for Farm Property Electing a Different Method How Is the Depreciation Deduction Figured?Using the MACRS Percentage Tables Figuring the Deduction Without Using the Tables Figuring the Deduction for Property Acquired in a Nontaxable Exchange Figuring the Deduction for a Short Tax Year How Do You Use General Asset Accounts?Grouping Property Figuring Depreciation for a GAA Disposing of GAA Property Terminating GAA Treatment Electing To Use a GAA When Do You Recapture MACRS Depreciation? Introduction The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. Turbotax 2011 free MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Turbotax 2011 free Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Turbotax 2011 free To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property in chapter 1. Turbotax 2011 free This chapter explains how to determine which MACRS depreciation system applies to your property. Turbotax 2011 free It also discusses other information you need to know before you can figure depreciation under MACRS. Turbotax 2011 free This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. Turbotax 2011 free It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. Turbotax 2011 free Finally, it explains when and how to recapture MACRS depreciation. Turbotax 2011 free Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 463 Travel, Entertainment, Gift, and Car  Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Turbotax 2011 free Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. Turbotax 2011 free You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Turbotax 2011 free If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. Turbotax 2011 free Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. Turbotax 2011 free If you placed your property in service before 2013 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III. Turbotax 2011 free Required use of ADS. Turbotax 2011 free   You must use ADS for the following property. Turbotax 2011 free Listed property used 50% or less in a qualified business use. Turbotax 2011 free See chapter 5 for information on listed property. Turbotax 2011 free Any tangible property used predominantly outside the United States during the year. Turbotax 2011 free Any tax-exempt use property. Turbotax 2011 free Any tax-exempt bond-financed property. Turbotax 2011 free All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. Turbotax 2011 free Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. Turbotax 2011 free If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property. Turbotax 2011 free Electing ADS. Turbotax 2011 free   Although your property may qualify for GDS, you can elect to use ADS. Turbotax 2011 free The election generally must cover all property in the same property class that you placed in service during the year. Turbotax 2011 free However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Turbotax 2011 free Once you make this election, you can never revoke it. Turbotax 2011 free   You make the election by completing line 20 in Part III of Form 4562. Turbotax 2011 free Which Property Class Applies Under GDS? The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. Turbotax 2011 free These property classes are also listed under column (a) in section B, Part III, of Form 4562. Turbotax 2011 free For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. Turbotax 2011 free 3-year property. Turbotax 2011 free Tractor units for over-the-road use. Turbotax 2011 free Any race horse over 2 years old when placed in service. Turbotax 2011 free (All race horses placed in service after December 31, 2008, and before January 1, 2014, are deemed to be 3-year property, regardless of age. Turbotax 2011 free ) Any other horse (other than a race horse) over 12 years old when placed in service. Turbotax 2011 free Qualified rent-to-own property (defined later). Turbotax 2011 free 5-year property. Turbotax 2011 free Automobiles, taxis, buses, and trucks. Turbotax 2011 free Computers and peripheral equipment. Turbotax 2011 free Office machinery (such as typewriters, calculators, and copiers). Turbotax 2011 free Any property used in research and experimentation. Turbotax 2011 free Breeding cattle and dairy cattle. Turbotax 2011 free Appliances, carpets, furniture, etc. Turbotax 2011 free , used in a residential rental real estate activity. Turbotax 2011 free Certain geothermal, solar, and wind energy property. Turbotax 2011 free 7-year property. Turbotax 2011 free Office furniture and fixtures (such as desks, files, and safes). Turbotax 2011 free Agricultural machinery and equipment. Turbotax 2011 free Any property that does not have a class life and has not been designated by law as being in any other class. Turbotax 2011 free Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. Turbotax 2011 free Any natural gas gathering line placed in service after April 11, 2005. Turbotax 2011 free See Natural gas gathering line and electric transmission property , later. Turbotax 2011 free 10-year property. Turbotax 2011 free Vessels, barges, tugs, and similar water transportation equipment. Turbotax 2011 free Any single purpose agricultural or horticultural structure. Turbotax 2011 free Any tree or vine bearing fruits or nuts. Turbotax 2011 free Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. Turbotax 2011 free 15-year property. Turbotax 2011 free Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). Turbotax 2011 free Any retail motor fuels outlet (defined later), such as a convenience store. Turbotax 2011 free Any municipal wastewater treatment plant. Turbotax 2011 free Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. Turbotax 2011 free Any qualified restaurant property (defined later) placed in service before January 1, 2014. Turbotax 2011 free Initial clearing and grading land improvements for gas utility property. Turbotax 2011 free Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. Turbotax 2011 free See Natural gas gathering line and electric transmission property , later. Turbotax 2011 free Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. Turbotax 2011 free Any qualified retail improvement property placed in service before January 1, 2014. Turbotax 2011 free 20-year property. Turbotax 2011 free Farm buildings (other than single purpose agricultural or horticultural structures). Turbotax 2011 free Municipal sewers not classified as 25-year property. Turbotax 2011 free Initial clearing and grading land improvements for electric utility transmission and distribution plants. Turbotax 2011 free 25-year property. Turbotax 2011 free This class is water utility property, which is either of the following. Turbotax 2011 free Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property. Turbotax 2011 free Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. Turbotax 2011 free Residential rental property. Turbotax 2011 free This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. Turbotax 2011 free A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Turbotax 2011 free It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. Turbotax 2011 free If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy. Turbotax 2011 free Nonresidential real property. Turbotax 2011 free This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27. Turbotax 2011 free 5 years. Turbotax 2011 free Qualified rent-to-own property. Turbotax 2011 free   Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. Turbotax 2011 free It is tangible personal property generally used in the home for personal use. Turbotax 2011 free It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Turbotax 2011 free Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. Turbotax 2011 free   If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. Turbotax 2011 free However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property. Turbotax 2011 free Rent-to-own dealer. Turbotax 2011 free   You are a rent-to-own dealer if you meet all the following requirements. Turbotax 2011 free You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. Turbotax 2011 free A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. Turbotax 2011 free The property is tangible personal property of a type generally used within the home for personal use. Turbotax 2011 free Rent-to-own contract. Turbotax 2011 free   This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which— Is titled “Rent-to-Own Agreement,” “Lease Agreement with Ownership Option,” or other similar language. Turbotax 2011 free Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend). Turbotax 2011 free Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. Turbotax 2011 free If the payments are decreasing, no payment can be less than 40% of the largest payment. Turbotax 2011 free Provides for total payments that generally exceed the normal retail price of the property plus interest. Turbotax 2011 free Provides for total payments that do not exceed $10,000 for each item of property. Turbotax 2011 free Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments. Turbotax 2011 free Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title. Turbotax 2011 free Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made. Turbotax 2011 free Motorsports entertainment complex. Turbotax 2011 free   This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. Turbotax 2011 free The events must be open to the public for the price of admission. Turbotax 2011 free Qualified smart electric grid system. Turbotax 2011 free   A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. Turbotax 2011 free Smart grid property includes electronics and related equipment that is capable of: Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid, Providing real-time, two-way communications to monitor or to manage the grid, and Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance. Turbotax 2011 free Retail motor fuels outlet. Turbotax 2011 free   Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests. Turbotax 2011 free It is not larger than 1,400 square feet. Turbotax 2011 free 50% or more of the gross revenues generated from the property are derived from petroleum sales. Turbotax 2011 free 50% or more of the floor space in the property is devoted to petroleum marketing sales. Turbotax 2011 free A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. Turbotax 2011 free Qualified leasehold improvement property. Turbotax 2011 free    Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. Turbotax 2011 free   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions. Turbotax 2011 free A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. Turbotax 2011 free Examples include the following. Turbotax 2011 free A complete liquidation of a subsidiary. Turbotax 2011 free A transfer to a corporation controlled by the transferor. Turbotax 2011 free An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Turbotax 2011 free Qualified restaurant property. Turbotax 2011 free   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. Turbotax 2011 free Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals. Turbotax 2011 free Qualified smart electric meter. Turbotax 2011 free   A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that: Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day; Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response; Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and Provides all commercial and residential customers of such supplier or provider with net metering. Turbotax 2011 free Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider. Turbotax 2011 free Natural gas gathering line and electric transmission property. Turbotax 2011 free   Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met. Turbotax 2011 free The original use of the property must have begun with you after April 11, 2005. Turbotax 2011 free Original use means the first use to which the property is put, whether or not by you. Turbotax 2011 free Therefore, property used by any person before April 12, 2005, is not original use. Turbotax 2011 free Original use includes additional capital expenditures you incurred to recondition or rebuild your property. Turbotax 2011 free However, original use does not include the cost of reconditioned or rebuilt property you acquired. Turbotax 2011 free Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property. Turbotax 2011 free The property must not be placed in service under a binding contract in effect before April 12, 2005. Turbotax 2011 free The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. Turbotax 2011 free Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by you. Turbotax 2011 free What Is the Placed in Service Date? You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. Turbotax 2011 free The placed in service date for your property is the date the property is ready and available for a specific use. Turbotax 2011 free It is therefore not necessarily the date it is first used. Turbotax 2011 free If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. Turbotax 2011 free See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. Turbotax 2011 free What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. Turbotax 2011 free For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . Turbotax 2011 free Reduce that amount by any credits and deductions allocable to the property. Turbotax 2011 free The following are examples of some credits and deductions that reduce basis. Turbotax 2011 free Any deduction for section 179 property. Turbotax 2011 free Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. Turbotax 2011 free Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014. Turbotax 2011 free Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2014. Turbotax 2011 free Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2014 . Turbotax 2011 free Any deduction for removal of barriers to the disabled and the elderly. Turbotax 2011 free Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Turbotax 2011 free Any special depreciation allowance. Turbotax 2011 free Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Turbotax 2011 free For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Turbotax 2011 free Enter the basis for depreciation under column (c) in Part III of Form 4562. Turbotax 2011 free For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . Turbotax 2011 free Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Turbotax 2011 free It is determined based on the depreciation system (GDS or ADS) used. Turbotax 2011 free Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. Turbotax 2011 free Property Class Recovery Period 3-year property   3 years 1   5-year property   5 years     7-year property   7 years     10-year property   10 years     15-year property   15 years 2   20-year property   20 years     25-year property   25 years 3   Residential rental property   27. Turbotax 2011 free 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. Turbotax 2011 free 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. Turbotax 2011 free 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. Turbotax 2011 free 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. Turbotax 2011 free 431. Turbotax 2011 free 5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993). Turbotax 2011 free The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Turbotax 2011 free Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. Turbotax 2011 free Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property). Turbotax 2011 free Office in the home. Turbotax 2011 free   If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31. Turbotax 2011 free 5 years if you began using it for business before May 13, 1993). Turbotax 2011 free However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Depreciation System (GDS or ADS) Applies , depreciate the part used as an office as residential rental property over 27. Turbotax 2011 free 5 years. Turbotax 2011 free See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. Turbotax 2011 free Home changed to rental use. Turbotax 2011 free   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. Turbotax 2011 free 5 years. Turbotax 2011 free Indian Reservation Property The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2014 are shorter than those listed earlier. Turbotax 2011 free The following table shows these shorter recovery periods. Turbotax 2011 free Property Class Recovery  Period 3-year property 2 years 5-year property 3 years 7-year property 4 years 10-year property 6 years 15-year property 9 years 20-year property 12 years Nonresidential real property 22 years Nonresidential real property is defined earlier under Which Property Class Applies Under GDS . Turbotax 2011 free Use this chart to find the correct percentage table to use for qualified Indian reservation property. Turbotax 2011 free IF your recovery period is: THEN use the following table in Appendix A: 2 years A-21 3 years A-1, A-2, A-3, A-4, or A-5 4 years A-22 6 years A-23 9 years A-14, A-15, A-16, A-17, or A-18 12 years A-14, A-15, A-16, A-17, or A-18 22 years A-24 Qualified property. Turbotax 2011 free   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. Turbotax 2011 free You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. Turbotax 2011 free The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation. Turbotax 2011 free   The following property is not qualified property. Turbotax 2011 free Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. Turbotax 2011 free Property acquired directly or indirectly from a related person. Turbotax 2011 free Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. Turbotax 2011 free These activities are defined in section 4 of the Indian Regulatory Act (25 U. Turbotax 2011 free S. Turbotax 2011 free C. Turbotax 2011 free 2703). Turbotax 2011 free Any property you must depreciate under ADS. Turbotax 2011 free Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5). Turbotax 2011 free Qualified infrastructure property. Turbotax 2011 free   Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. Turbotax 2011 free Qualified infrastructure property is property that meets all the following rules. Turbotax 2011 free It is qualified property, as defined earlier, except that it is outside the reservation. Turbotax 2011 free It benefits the tribal infrastructure. Turbotax 2011 free It is available to the general public. Turbotax 2011 free It is placed in service in connection with the active conduct of a trade or business within a reservation. Turbotax 2011 free Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. Turbotax 2011 free Related person. Turbotax 2011 free   For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons. Turbotax 2011 free Indian reservation. Turbotax 2011 free   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. Turbotax 2011 free S. Turbotax 2011 free C. Turbotax 2011 free 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. Turbotax 2011 free S. Turbotax 2011 free C. Turbotax 2011 free 1903(10)). Turbotax 2011 free Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. Turbotax 2011 free For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. Turbotax 2011 free Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. Turbotax 2011 free The following table shows some of the ADS recovery periods. Turbotax 2011 free Property Recovery  Period Rent-to-own property 4 years Automobiles and light duty trucks 5 years Computers and peripheral equipment 5 years High technology telephone station equipment installed on customer premises 5 years High technology medical equipment 5 years Personal property with no class life 12 years Natural gas gathering lines 14 years Single purpose agricultural and horticultural structures 15 years Any tree or vine bearing fruit or nuts 20 years Initial clearing and grading land  improvements for gas utility property 20 years Initial clearing and grading land  improvements for electric utility  transmission and distribution plants 25 years Electric transmission property used in the transmission at 69 or more kilovolts of electricity 30 years Natural gas distribution lines 35 years Any qualified leasehold improvement property 39 years Any qualified restaurant property 39 years Nonresidential real property 40 years Residential rental property 40 years Section 1245 real property not listed in Appendix B 40 years Railroad grading and tunnel bore 50 years The ADS recovery periods for property not listed above can be found in the tables in Appendix B. Turbotax 2011 free Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS . Turbotax 2011 free Tax-exempt use property subject to a lease. Turbotax 2011 free   The ADS recovery period for any property leased under a lease agreement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership) cannot be less than 125% of the lease term. Turbotax 2011 free Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. Turbotax 2011 free See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Turbotax 2011 free Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. Turbotax 2011 free The recovery period begins on the later of the following dates. Turbotax 2011 free The date you place the addition or improvement in service. Turbotax 2011 free The date you place in service the property to which you made the addition or improvement. Turbotax 2011 free If the improvement you make is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property, the GDS recovery period is 15 years (39 years under ADS). Turbotax 2011 free Example. Turbotax 2011 free You own a rental home that you have been renting out since 1981. Turbotax 2011 free If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. Turbotax 2011 free Under GDS, the property class for the addition is residential rental property and its recovery period is 27. Turbotax 2011 free 5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year. Turbotax 2011 free Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Turbotax 2011 free The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Turbotax 2011 free The mid-month convention. Turbotax 2011 free   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. Turbotax 2011 free   Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. Turbotax 2011 free This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. Turbotax 2011 free   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. Turbotax 2011 free The mid-quarter convention. Turbotax 2011 free   Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year. Turbotax 2011 free   Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. Turbotax 2011 free This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. Turbotax 2011 free   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. Turbotax 2011 free    For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. Turbotax 2011 free However, it does not reflect any reduction in basis for any special depreciation allowance. Turbotax 2011 free The half-year convention. Turbotax 2011 free   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. Turbotax 2011 free   Under this convention, you treat all property placed in service or disposed of during a tax year as placed in service or disposed of at the midpoint of the year. Turbotax 2011 free This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. Turbotax 2011 free   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. Turbotax 2011 free Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Turbotax 2011 free The 200% declining balance method over a GDS recovery period. Turbotax 2011 free The 150% declining balance method over a GDS recovery period. Turbotax 2011 free The straight line method over a GDS recovery period. Turbotax 2011 free The straight line method over an ADS recovery period. Turbotax 2011 free For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. Turbotax 2011 free If you made this election, continue to use the same method and recovery period for that property. Turbotax 2011 free Table 4–1 lists the types of property you can depreciate under each method. Turbotax 2011 free It also gives a brief explanation of the method, including any benefits that may apply. Turbotax 2011 free Depreciation Methods for Farm Property If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. Turbotax 2011 free You can depreciate real property using the straight line method under either GDS or ADS. Turbotax 2011 free Fruit or nut trees and vines. Turbotax 2011 free   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. Turbotax 2011 free ADS required for some farmers. Turbotax 2011 free   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. Turbotax 2011 free You must use ADS for all property you place in service in any year the election is in effect. Turbotax 2011 free See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. Turbotax 2011 free Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. Turbotax 2011 free You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Turbotax 2011 free However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Turbotax 2011 free Attach the election to the amended return and write “Filed pursuant to section 301. Turbotax 2011 free 9100-2” on the election statement. Turbotax 2011 free File the amended return at the same address you filed the original return. Turbotax 2011 free Once you make the election, you cannot change it. Turbotax 2011 free If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. Turbotax 2011 free However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. Turbotax 2011 free 150% election. Turbotax 2011 free   Instead of using the 200% declining balance method over the GDS recovery period for nonfarm property in the 3-, 5-, 7-, and 10-year property classes, you can elect to use the 150% declining balance method. Turbotax 2011 free Make the election by entering “150 DB” under column (f) in Part III of Form 4562. Turbotax 2011 free Straight line election. Turbotax 2011 free   Instead of using either the 200% or 150% declining balance methods over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. Turbotax 2011 free Make the election by entering  “S/L” under column (f) in Part III of Form 4562. Turbotax 2011 free Election of ADS. Turbotax 2011 free   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. Turbotax 2011 free ADS uses the straight line method of depreciation over fixed ADS recovery periods. Turbotax 2011 free Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. Turbotax 2011 free   Make the election by completing line 20 in Part III of Form 4562. Turbotax 2011 free Farm property. Turbotax 2011 free   Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods. Turbotax 2011 free The straight line method over a GDS recovery period. Turbotax 2011 free The straight line method over an ADS recovery period. Turbotax 2011 free Table 4-1. Turbotax 2011 free Depreciation Methods Note. Turbotax 2011 free The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Turbotax 2011 free Method Type of Property Benefit GDS using 200% DB • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction GDS using 150% DB • All farm property (except real property) • All 15- and 20-year property (except qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service before January 1, 2014) • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction1 GDS using SL • Nonresidential real property • Qualified leasehold improvement property placed in service before January 1, 2014 • Qualified restaurant property placed in service before January 1, 2014 • Qualified retail improvement property placed in service before January 1, 2014 • Residential rental property • Trees or vines bearing fruit or nuts • Water utility property • All 3-, 5-, 7-, 10-, 15-, and 20-year property2 • Property for which you elected section 168(k)(4) • Provides for equal yearly deductions (except for the first and last years) ADS using SL • Listed property used 50% or less for business • Property used predominantly outside the U. Turbotax 2011 free S. Turbotax 2011 free  • Tax-exempt property • Tax-exempt bond-financed property • Farm property used when an election not to apply the uniform capitalization rules is in effect • Imported property3 • Any property for which you elect to use this method4 • Provides for equal yearly deductions (except for the first and last years) 1The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates 2See section 168(b)(5) of the Internal Revenue Code. Turbotax 2011 free 3See section 168(g)(6) of the Internal Revenue Code 4See section 168(g)(7) of the Internal Revenue Code How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Turbotax 2011 free Then, you are ready to figure your depreciation deduction. Turbotax 2011 free You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. Turbotax 2011 free Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. Turbotax 2011 free These percentage tables are in Appendix A near the end of this publication. Turbotax 2011 free Which table to use. Turbotax 2011 free    Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. Turbotax 2011 free The percentage tables immediately follow the guide. Turbotax 2011 free Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. Turbotax 2011 free You must apply the rates in the percentage tables to your property's unadjusted basis. Turbotax 2011 free You cannot use the percentage tables for a short tax year. Turbotax 2011 free See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. Turbotax 2011 free Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property. Turbotax 2011 free You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to that property that is depreciated as a separate item of property. Turbotax 2011 free Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss. Turbotax 2011 free Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Turbotax 2011 free   If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. Turbotax 2011 free For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. Turbotax 2011 free See Figuring the Deduction Without Using the Tables, later. Turbotax 2011 free Basis adjustment due to casualty loss. Turbotax 2011 free   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Turbotax 2011 free For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. Turbotax 2011 free See Figuring the Deduction Without Using the Tables, later. Turbotax 2011 free Example. Turbotax 2011 free On October 26, 2012, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7-year property. Turbotax 2011 free It cost $39,000 and she elected a section 179 deduction of $24,000. Turbotax 2011 free She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Turbotax 2011 free Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). Turbotax 2011 free She figured her MACRS depreciation deduction using the percentage tables. Turbotax 2011 free For 2012, her MACRS depreciation deduction was $268. Turbotax 2011 free In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. Turbotax 2011 free She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Turbotax 2011 free Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. Turbotax 2011 free She figures that amount by subtracting the 2012 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. Turbotax 2011 free She must now figure her depreciation for 2013 without using the percentage tables. Turbotax 2011 free Figuring the Unadjusted Basis of Your Property You must apply the table rates to your property's unadjusted basis each year of the recovery period. Turbotax 2011 free Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. Turbotax 2011 free However, you do reduce your original basis by other amounts, including the following. Turbotax 2011 free Any amortization taken on the property. Turbotax 2011 free Any section 179 deduction claimed. Turbotax 2011 free Any special depreciation allowance taken on the property. Turbotax 2011 free For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. Turbotax 2011 free If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments. Turbotax 2011 free MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Turbotax 2011 free Use a separate worksheet for each item of property. Turbotax 2011 free Then, use the information from this worksheet to prepare Form 4562. Turbotax 2011 free Do not use this worksheet for automobiles. Turbotax 2011 free Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. Turbotax 2011 free MACRS Worksheet Part I   1. Turbotax 2011 free MACRS system (GDS or ADS)   2. Turbotax 2011 free Property class   3. Turbotax 2011 free Date placed in service   4. Turbotax 2011 free Recovery period   5. Turbotax 2011 free Method and convention   6. Turbotax 2011 free Depreciation rate (from tables)   Part II   7. Turbotax 2011 free Cost or other basis* $     8. Turbotax 2011 free Business/investment use   %   9. Turbotax 2011 free Multiply line 7 by line 8   $ 10. Turbotax 2011 free Total claimed for section 179 deduction and other items   $ 11. Turbotax 2011 free Subtract line 10 from line 9. Turbotax 2011 free This is your tentative basis for depreciation   $ 12. Turbotax 2011 free Multiply line 11 by . Turbotax 2011 free 50 if the 50% special depreciation allowance applies. Turbotax 2011 free This is your special depreciation allowance. Turbotax 2011 free Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   $ 13. Turbotax 2011 free Subtract line 12 from line 11. Turbotax 2011 free This is your basis for depreciation     14. Turbotax 2011 free Depreciation rate (from line 6)     15. Turbotax 2011 free Multiply line 13 by line 14. Turbotax 2011 free This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. Turbotax 2011 free The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. Turbotax 2011 free Example. Turbotax 2011 free You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. Turbotax 2011 free You use the furniture only for business. Turbotax 2011 free This is the only property you placed in service this year. Turbotax 2011 free You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. Turbotax 2011 free You use GDS and the half-year convention to figure your depreciation. Turbotax 2011 free You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Turbotax 2011 free Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. Turbotax 2011 free You figure your depreciation deduction using the MACRS worksheet as follows. Turbotax 2011 free MACRS Worksheet Part I 1. Turbotax 2011 free MACRS system (GDS or ADS) GDS 2. Turbotax 2011 free Property class 7-year 3. Turbotax 2011 free Date placed in service 8/11/13 4. Turbotax 2011 free Recovery period 7-Year 5. Turbotax 2011 free Method and convention 200%DB/Half-Year 6. Turbotax 2011 free Depreciation rate (from tables) . Turbotax 2011 free 1429 Part II 7. Turbotax 2011 free Cost or other basis* $10,000     8. Turbotax 2011 free Business/investment use 100 %   9. Turbotax 2011 free Multiply line 7 by line 8   $10,000 10. Turbotax 2011 free Total claimed for section 179 deduction and other items   -0- 11. Turbotax 2011 free Subtract line 10 from line 9. Turbotax 2011 free This is your tentative basis for depreciation   $10,000 12. Turbotax 2011 free Multiply line 11 by . Turbotax 2011 free 50 if the 50% special depreciation allowance applies. Turbotax 2011 free This is your special depreciation allowance. Turbotax 2011 free Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   -0- 13. Turbotax 2011 free Subtract line 12 from line 11. Turbotax 2011 free This is your basis for depreciation   $10,000 14. Turbotax 2011 free Depreciation rate (from line 6)   . Turbotax 2011 free 1429 15. Turbotax 2011 free Multiply line 13 by line 14. Turbotax 2011 free This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. Turbotax 2011 free If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows. Turbotax 2011 free Year   Basis Percentage Deduction 2014 $ 10,000 24. Turbotax 2011 free 49%   $2,449   2015   10,000 17. Turbotax 2011 free 49   1,749   2016   10,000 12. Turbotax 2011 free 49   1,249   2017   10,000 8. Turbotax 2011 free 93   893   2018   10,000 8. Turbotax 2011 free 92   892   2019   10,000 8. Turbotax 2011 free 93   893   2020   10,000 4. Turbotax 2011 free 46   446   Examples The following examples are provided to show you how to use the percentage tables. Turbotax 2011 free In both examples, assume the following. Turbotax 2011 free You use the property only for business. Turbotax 2011 free You use the calendar year as your tax year. Turbotax 2011 free You use GDS for all the properties. Turbotax 2011 free Example 1. Turbotax 2011 free You bought a building and land for $120,000 and placed it in service on March 8. Turbotax 2011 free The sales contract showed that the building cost $100,000 and the land cost $20,000. Turbotax 2011 free It is nonresidential real property. Turbotax 2011 free The building's unadjusted basis is its original cost, $100,000. Turbotax 2011 free You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. Turbotax 2011 free March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. Turbotax 2011 free Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. Turbotax 2011 free 033%   $2,033   2nd   100,000 2. Turbotax 2011 free 564   2,564   3rd   100,000 2. Turbotax 2011 free 564   2,564   Example 2. Turbotax 2011 free During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. Turbotax 2011 free You placed the machine in service in January, the furniture in September, and the computer in October. Turbotax 2011 free You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. Turbotax 2011 free You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. Turbotax 2011 free The total bases of all property you placed in service during the year is $10,000. Turbotax 2011 free The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. Turbotax 2011 free Therefore, you must use the mid-quarter convention for all three items. Turbotax 2011 free You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. Turbotax 2011 free The machine is 7-year property placed in service in the first quarter, so you use Table A-2. Turbotax 2011 free The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Turbotax 2011 free Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. Turbotax 2011 free Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. Turbotax 2011 free Year Property Basis Percentage Deduction 1st Machine $4,000 25. Turbotax 2011 free 00 $1,000   2nd Machine 4,000 21. Turbotax 2011 free 43 857   1st Furniture 1,000 10. Turbotax 2011 free 71 107   2nd Furniture 1,000 25. Turbotax 2011 free 51 255   1st Computer 5,000 5. Turbotax 2011 free 00 250   2nd Computer 5,000 38. Turbotax 2011 free 00 1,900   Sale or Other Disposition Before the Recovery Period Ends If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. Turbotax 2011 free You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. Turbotax 2011 free After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. Turbotax 2011 free Half-year convention used. Turbotax 2011 free   For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year. Turbotax 2011 free Mid-quarter convention used. Turbotax 2011 free   For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property. Turbotax 2011 free Quarter Percentage First 12. Turbotax 2011 free 5% Second 37. Turbotax 2011 free 5 Third 62. Turbotax 2011 free 5 Fourth 87. Turbotax 2011 free 5 Example. Turbotax 2011 free On December 2, 2010, you placed in service an item of 5-year property costing $10,000. Turbotax 2011 free You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Turbotax 2011 free Your unadjusted basis for the property was $10,000. Turbotax 2011 free You used the mid-quarter convention because this was the only item of business property you placed in service in 2010 and it was placed in service during the last 3 months of your tax year. Turbotax 2011 free Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Turbotax 2011 free Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. Turbotax 2011 free 80% of $10,000). Turbotax 2011 free You disposed of the property on April 6, 2013. Turbotax 2011 free To determine your depreciation deduction for 2013, first figure the deduction for the full year. Turbotax 2011 free This is $1,368 (13. Turbotax 2011 free 68% of $10,000). Turbotax 2011 free April is in the second quarter of the year, so you multiply $1,368 by 37. Turbotax 2011 free 5% to get your depreciation deduction of $513 for 2013. Turbotax 2011 free Mid-month convention used. Turbotax 2011 free   If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. Turbotax 2011 free The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. Turbotax 2011 free The denominator is 12. Turbotax 2011 free Example. Turbotax 2011 free On July 2, 2011, you purchased and placed in service residential rental property. Turbotax 2011 free The property cost $100,000, not including the cost of land. Turbotax 2011 free You used Table A-6 to figure your MACRS depreciation for this property. Turbotax 2011 free You sold the property on March 2, 2013. Turbotax 2011 free You file your tax return based on the calendar year. Turbotax 2011 free A full year of depreciation for 2013 is $3,636. Turbotax 2011 free This is $100,000 multiplied by . Turbotax 2011 free 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . Turbotax 2011 free You then apply the mid-month convention for the 2½ months of use in 2013. Turbotax 2011 free Treat the month of disposition as one-half month of use. Turbotax 2011 free Multiply $3,636 by the fraction, 2. Turbotax 2011 free 5 over 12, to get your 2013 depreciation deduction of $757. Turbotax 2011 free 50. Turbotax 2011 free Figuring the Deduction Without Using the Tables Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. Turbotax 2011 free Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. Turbotax 2011 free Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. Turbotax 2011 free Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. Turbotax 2011 free You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. Turbotax 2011 free The straight line method is explained later. Turbotax 2011 free You figure depreciation for the year you place property in service as follows. Turbotax 2011 free Multiply your adjusted basis in the property by the declining balance rate. Turbotax 2011 free Apply the applicable convention. Turbotax 2011 free You figure depreciation for all other years (before the year you switch to the straight line method) as follows. Turbotax 2011 free Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. Turbotax 2011 free Multiply this new adjusted basis by the same declining balance rate used in earlier years. Turbotax 2011 free If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it. Turbotax 2011 free Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. Turbotax 2011 free Declining balance rate. Turbotax 2011 free   You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. Turbotax 2011 free For example, for 3-year property depreciated using the 200% declining balance method, divide 2. Turbotax 2011 free 00 (200%) by 3 to get 0. Turbotax 2011 free 6667, or a 66. Turbotax 2011 free 67% declining balance rate. Turbotax 2011 free For 15-year property depreciated using the 150% declining balance method, divide 1. Turbotax 2011 free 50 (150%) by 15 to get 0. Turbotax 2011 free 10, or a 10% declining balance rate. Turbotax 2011 free   The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction. Turbotax 2011 free Property Class Method Declining Balance Rate Year 3-year 200% DB 66. Turbotax 2011 free 667% 3rd 5-year 200% DB 40. Turbotax 2011 free 0 4th 7-year 200% DB 28. Turbotax 2011 free 571 5th 10-year 200% DB 20. Turbotax 2011 free 0 7th 15-year 150% DB 10. Turbotax 2011 free 0 7th 20-year 150% DB 7. Turbotax 2011 free 5 9th Straight Line Method When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. Turbotax 2011 free You must use the applicable convention in the year you place the property in service and the year you dispose of the property. Turbotax 2011 free You figure depreciation for the year you place property in service as follows. Turbotax 2011 free Multiply your adjusted basis in the property by the straight line rate. Turbotax 2011 free Apply the applicable convention. Turbotax 2011 free You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. Turbotax 2011 free Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). Turbotax 2011 free Determine the depreciation rate for the year. Turbotax 2011 free Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). Turbotax 2011 free If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it. Turbotax 2011 free Straight line rate. Turbotax 2011 free   You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. Turbotax 2011 free When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. Turbotax 2011 free If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. Turbotax 2011 free 0 (100%). Turbotax 2011 free Using the Applicable Convention The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. Turbotax 2011 free It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. Turbotax 2011 free See Straight line rate in the previous discussion. Turbotax 2011 free Use the applicable convention as explained in the following discussions. Turbotax 2011 free Half-year convention. Turbotax 2011 free   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. Turbotax 2011 free You deduct a full year of depreciation for any other year during the recovery period. Turbotax 2011 free   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. Turbotax 2011 free If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. Turbotax 2011 free If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property. Turbotax 2011 free Mid-quarter convention. Turbotax 2011 free   If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service. Turbotax 2011 free   A quarter of a full 12-month tax year is a period of 3 months. Turbotax 2011 free The first quarter in a year begins on the first day of the tax year. Turbotax 2011 free The second quarter begins on the first day of the fourth month of the tax year. Turbotax 2011 free The third quarter begins on the first day of the seventh month of the tax year. Turbotax 2011 free The fourth quarter begins on the first day of the tenth month of the tax year. Turbotax 2011 free A calendar year is divided into the following quarters. Turbotax 2011 free Quarter Months First January, February, March Second April, May, June Third July, August, September Fourth October, November, December   Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service. Turbotax 2011 free Quarter Percentage First 87. Turbotax 2011 free 5% Second 62. Turbotax 2011 free 5 Third 37. Turbotax 2011 free 5 Fourth 12. Turbotax 2011 free 5   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property. Turbotax 2011 free Quarter Percentage First 12. Turbotax 2011 free 5% Second 37. Turbotax 2011 free 5 Third 62. Turbotax 2011 free 5 Fourth 87. Turbotax 2011 free 5   If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property. Turbotax 2011 free Mid-month convention. Turbotax 2011 free   If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. Turbotax 2011 free Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. Turbotax 2011 free The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. Turbotax 2011 free 5). Turbotax 2011 free The denominator is 12. Turbotax 2011 free   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. Turbotax 2011 free If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property. Turbotax 2011 free Example. Turbotax 2011 free You use the calendar year and place nonresidential real property in service in August. Turbotax 2011 free The property is in service 4 full months (September, October, November, and December). Turbotax 2011 free Your numerator is 4. Turbotax 2011 free 5 (4 full months plus 0. Turbotax 2011 free 5). Turbotax 2011 free You multiply the depreciation for a full year by 4. Turbotax 2011 free 5/12, or 0. Turbotax 2011 free 375. Turbotax 2011 free Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. Turbotax 2011 free Figures are rounded for purposes of the examples. Turbotax 2011 free Assume for all the examples that you use a calendar year as your tax year. Turbotax 2011 free Example 1—200% DB method and half-year convention. Turbotax 2011 free In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. Turbotax 2011 free You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. Turbotax 2011 free You use GDS and the 200% declining balance (DB) method to figure your depreciation. Turbotax 2011 free When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. Turbotax 2011 free You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. Turbotax 2011 free First year. Turbotax 2011 free You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). Turbotax 2011 free The result is 40%. Turbotax 2011 free You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. Turbotax 2011 free You apply the half-year convention by dividing the result ($400) by 2. Turbotax 2011 free Depreciation for the first year under the 200% DB method is $200. Turbotax 2011 free You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. Turbotax 2011 free The result is 20%. Turbotax 2011 free You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. Turbotax 2011 free You apply the half-year convention by dividing the result ($200) by 2. Turbotax 2011 free Depreciation for the first year under the SL method is $100. Turbotax 2011 free The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. Turbotax 2011 free Second year. Turbotax 2011 free You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). Turbotax 2011 free You multiply the result ($800) by the DB rate (40%). Turbotax 2011 free Depreciation for the second year under the 200% DB method is $320. Turbotax 2011 free You figure the SL depreciation rate by dividing 1 by 4. Turbotax 2011 free 5, the number of years remaining in the recovery period. Turbotax 2011 free (Based on the half-year convention, you used only half a year of the recovery period in the first year. Turbotax 2011 free ) You multiply the reduced adjusted basis ($800) by the result (22. Turbotax 2011 free 22%). Turbotax 2011 free Depreciation under the SL method for the second year is $178. Turbotax 2011 free The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. Turbotax 2011 free Third year. Turbotax 2011 free You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). Turbotax 2011 free You multiply the result ($480) by the DB rate (40%). Turbotax 2011 free Depreciation for the third year under the 200% DB method is $192. Turbotax 2011 free You figure the SL depreciation rate by dividing 1 by 3. Turbotax 2011 free 5. Turbotax 2011 free You multiply the reduced adjusted basis ($480) by the result (28. Turbotax 2011 free 57%). Turbotax 2011 free Depreciation under the SL method for the third year is $137. Turbotax 2011 free The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. Turbotax 2011 free Fourth year. Turbotax 2011 free You reduce the adjusted basis ($480) by the de